Is Your Small Business Prepared for a Lawsuit?

by edralyn on July 9, 2013

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Is Your Small Business Prepared for a Lawsuit?

For a small business owner, there’s nothing quite as scary as coming to work in the morning and finding out you’re being sued. It’s hard to put a positive spin on a lawsuit, but don’t panic. This is actually very common. According to YFS Magazine, 57 percent of annual lawsuits are brought against businesses making under $1 million in revenue, costing small business owners $100 billion spent on legal entanglements every year. If your business has survived its first five years, you’ve effectively beat the start-up odds, but you’ve also increased your chances of eventually being sued. This doesn’t mean you’re necessarily doing anything wrong. Lawsuit abuse can come from many sources, from disgruntled customers and employees, to simple unfortunate accidents. While it’s important to take the steps you can to prevent it from happening, sometimes you can’t. It’s important to have a plan for emergencies.

1. Double-check Documents

It sounds simple, but the first thing to do when you’re served with a lawsuit is read it. The news is often filled with stories of frivolous lawsuits, and many of the victims are small business owners. Before you make any judgments as to the validity of the claim, it’s important to get a sense of exactly what the claim is about and what led up to the lawsuit being filed. And there are even more practical reasons to check over all the documents, including making sure your business and the people involved are named correctly. Every state has specific requirements for how a lawsuit is to be served, and if you were served incorrectly or parties were not properly named, it’s the plaintiff’s job to fix it. In some instances, they might have to start all over, making it less likely the suit will go through.


2. Research Insurance Claim Options

Depending on your type of business, you may have liability insurance that will help cover the cost of court fees or even settlements. Malpractice insurance, trade liability, or most general liability policies will cover at least part of the costs associated with a lawsuit whether you win or lose. Call your insurance company and find out the steps you can take for filing a claim and how much you could receive. Many times, if the lawsuit is the result of property or injury claims that weren’t presented to you first, they may be covered under other insurance your business carries. If 60 percent of lawsuits annually are against small businesses, it stands to reason most of the plaintiffs pursue legal action before approaching the business the right way about their disputes. Your provider’s website can have the pertinent information you need to prepare. Settlements are easier to reach than you might think, and insurance can play a big part in that.

3. Consult with a Lawyer

Calling an attorney definitely sounds ominous, but there’s no better reason to get legal counsel than when you’ve been served with a lawsuit. An essential part of being a responsible business owner is knowing when you need help, and a good lawyer will understand what kind of consequences your company is facing much better than you do. They’ll be able to tell you about your realistic chances of beating the lawsuit or settling out of court, and they can help you figure out all the documentation and records you’ll need to prepare your case. However, as Forbes points out, be careful of letting your attorney be your mouthpiece. The best thing for your business and your reputation is when you can negotiate honestly on its behalf, which is why settling is so often preferred. The longer than legal disputes drag out, the more likely they are to drain your resources and leave the more crucial parts of your company neglected. A lawyer’s advice is incredibly valuable, but their job is to keep you out of court if possible.

4. Keep Calm

You’ve probably read horror stories about small businesses being destroyed financially by legal troubles. But in reality, the chance of your business closing because of a lawsuit is very remote. On the National Federation for Independent Business’ list of the top 75 problems, lawsuits came in at number 65, showing that it’s generally a rare occurrence. But that doesn’t mean small businesses shouldn’t take more steps to be prepared. If you have the right insurance policies, keep adequate records, and deal with your customers honestly, you’ll be able to address concerns that could lead to a lawsuit long before a plaintiff files papers. And if legal action does come your way, you’ll be prepared.

If the lawsuit filed against you has any merit, you should take it as a learning experience. Find out what you need to change about the way you do business in order to address concerns and make sure it doesn’t happen again. Your company can actually grow stronger and improve from hard times if you keep your wits about you and handle things responsibly. Nobody ever said the business world was going to be smooth sailing.

Author Karen Boyarsky is an avid blogger. You can follow her on Twitter @Boyarsky_kareni.

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